Are Microsoft licensing bargains obsolete?

The software giant is attempting to overhaul a program put in place last fall that allowed resellers to work directly with corporate accounts without any Microsoft involvement.

3 January 200212:43 am GMT

Finding a bargain on Microsoft licensing deals may be a thing of the past for corporate buyers.

The Redmond, Washington-based software giant is attempting to overhaul a
program put in place last fall that allowed resellers to work directly with
corporate accounts without any Microsoft involvement.

The program was initially seen as a boon for resellers, which were free to
compete head-to-head without a Microsoft intermediary. But resellers soon
found themselves in cutthroat bidding wars that left them with paper-thin
profit margins.

Microsoft now plans to work with so-called Large Account Resellers, or LARs,
to overhaul its policies in order to generate more profits for resellers.
Microsoft will now negotiate the pricing of its software upfront, directly
with corporate buyers, said Bill Henningsgaard, head of U.S. large
enterprise sales for Microsoft.

This will leave LARs to provide invoicing, post-sales support, and services,
and compete to differentiate themselves on those levels, he said. The
changes will be put in place over the coming months, depending on channel
feedback.

Such a move may alleviate the age-old complaint--that Microsoft has relatively
little connection with its enterprise customers--by connecting buyers and
Microsoft sales representatives upfront. However, analysts believe the
change could also give rise to complaints in other areas.

One problem companies may face now is "figuring out whether they're
getting a good deal from Microsoft," said Rob Enderle, an analyst with
Giga Information Group. "What they
used to do is bid LARs against each other in order to get a good deal. This
new program will take that avenue away."

Henningsgaard said it was that bidding process that made it essential
for Microsoft to step in. "There was incredible margin pressure. Many
LARs were seeing little return, and their business models were
[threatened]," he said.

The Enterprise Agreement part of the Select Licensing Agreement applies to
Microsoft's largest corporate accounts with centralized IT budgets which make
single licensing commitments with Microsoft.

In addition to the bidding wars amongst LARs, "Enterprise Agreement
customers tend to need a lot of customization, so Microsoft thought it
made much more sense for it to be involved in that process,"
Henningsgaard said.

However, as a result of these changes, Enderle said he expects to see "a
potential for higher dissatisfaction with Microsoft prices, because
without a baseline to go by companies won't know if they're getting a
good deal. Companies will feel more and more like they're are getting
taxed by Microsoft, and it probably won't be a good thing for the company
in the long run."

Although a few of its major channel partners have been notified, the
rest of the LAR community will be briefed on the proposed changes in two
weeks at a Reseller Executive Summit in Seattle, according to Microsoft.